What’s a SAFE, what’s a convertible note, and are they really better than just selling shares to investors?

A SAFE may feel safer to founders but will feel less safe to Aussie investors. Photo by Jason Dent on Unsplash

A common question from Aussie tech startup founders is whether they should raise their investment with a convertible note, priced equity, or a SAFE note.

The short answer is that you can raise investment with a SAFE note or convertible note in Australia, but you may find it harder to raise your round.

Here’s the longer answer (nothing that this advice pertains to Australian tech start- ups in 2020, that the future may be different and that other markets—like San Francisco—definitely are different).

Priced equity rounds

In a priced equity round, you and the investors must first agree on a dollar figure amount for the value of the company (called “the pre-money valuation” or sometimes just “the pre-money” or “the pre”).

You and the investors must then agree on how much investment capital (money) the company needs to achieve its next set of goals (called “the investment round” or “the round”).

You and the investors must also agree how that investment capital will be provided — which investors will contribute what amount. If…